First Majestic Silver Q4 2024 Earnings Call Transcript

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February 20, 2025

There are 10 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the First Majestic Silver twenty twenty four Production and Results Financial Results and twenty twenty five Guidance Conference Call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

Operator

Session. I would now like to turn the conference over to Mr. Keith Neumeier, President and Chief Executive Officer of First Majestic Silver. Keith, please go ahead.

Speaker 1

Well, thank you, and welcome to everyone joining our call today to discuss the Q4 and year end results and of course guidance as well, which was put out recently. Before I get into our discussion, I'm just going to pass the call over to Sameer Patel, our General Counsel, who will read our disclaimer.

Speaker 2

Thanks, Heath. Before we begin today's call, I would like to remind you that we will be referring to certain non IFRS measures and making certain statements regarding First Majestic's Silvernance operations that constitute forward looking statements in accordance with applicable Canadian and U. S. Securities laws. All statements that are not historical facts, such as statements regarding future estimates and plans or expectations of future performance constitute forward looking statements that reflect the company's current views with respect to future events.

Speaker 2

These statements are necessarily based upon a number of assumptions and estimates that, while considered reasonable by the company, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies.

Speaker 3

We encourage you to refer to

Speaker 2

the cautionary language included in our news release that was disseminated earlier this morning and the disclosure on non IFRS measures in our most recently filed management's discussion and analysis as well as the risk factors set out in our most recently filed annual information form. As a reminder, these documents along with all of our continuous disclosure documents are available under the company's profiles on both CDOT plus and on EDGAR. Investors are cautioned against attributing undue certainty or reliance on any forward looking statements made during today's call and the company does not intend or assume any obligation to update these forward looking statements or information other than as required by law. With that, I will turn the call back to Keith.

Speaker 1

Thanks, Sameer. In addition to Sameer and myself, Keith Neumar, CEO and Founder, on the phone today, we have Manny Alkafaji, who is our VP, Corporate Development Steve Holmes, who is our Chief Operating Officer. We also have Delray and Joel Feldman online as well who run IR. So just getting into the quarter, nice to see the stock up today.

Speaker 4

For those

Speaker 1

out there, we've been monitoring the shares. Obviously, we created quite a liquidity event for Gatos shareholders. They went from a very illiquid stock to obviously quite a liquid vehicle that trades tens of millions of shares a day. And I think it's created a situation where some investors have decided to pare down their positions, unfortunately. And it's put some undue pressure on first injector stock.

Speaker 1

And that has created our underperformance over the last couple of weeks since closing. It does take time to get through that and I think that a news release like today or news releases in the future when we get our Q1 numbers out, which will be pretty fantastic, including the Scot Hills transaction and Q2 will be a full quarter of all mines producing. It will be pretty interesting 2025 as the year evolves. But just focusing on the news release and Q4 and 2024, We had record cash flow in Q4. I'm not going to go through the news release and read it all out to you for $68,000,000 in our cash flow, pretty significant, amazing safety record, all time low, reportable loss incidences.

Speaker 1

We met our 2024 guidance, 21,700,000 ounces of silver equivalent production, but at all as the same cost of 2,111. We had record production in Santa Elena for the first time ever, breaking through 10,000,000 ounces of production, which is really nice to see. It got close in 2023, but in 2024, it actually broke through 10,000,000 ounces, which is obviously a pretty good situation. Ended the year with a very, very strong cash balance of $3.00 $8,000,000 and then $364,000,000 in liquidity. That does not include Gatos, by the way, just for those out there if you're wondering.

Speaker 1

That number will be released, obviously, as a result of our end of Q1. But we're in a very, very strong cash position, very strong balance sheet, which is very nice to see. Cash costs were down by 8% compared to Q1 versus Q4. Share buyback program has been in place. In the news release, we did show that we bought back 50,000 shares, but that was only just basically just in December.

Speaker 1

That share of Ivana Provence continued through January and into February, and we expect to continue that program. These share prices is pretty ridiculous in our opinion anyway. So we'll continue to continue that program. We have the Navadad announcement and the San Dimas announcements that have come out over the last few months regarding our exploration programs at both of those operations, Navadad being at Santa Elena for those who don't know. But discoveries continue at Santa Elena, which is obviously pretty nice situation.

Speaker 1

And we look at Los Gatos as almost a look alike asset, Los Gatos being 103,000 hectares in size and Santolina being 102,000 hectares in size. These are two very large chunky land packages that have exploration upside that is hard to measure if it's both of these operations have mine lives currently of close to ten years. And it's a nice place to be to have three assets, including Sandinas, that have long mine lives. And we don't have to be concerned about oh, well, we're miners, so we're always concerned about finding more ounces. But it's nice to have three solid assets in our portfolio.

Speaker 1

The Mint has done well. We had a great Q4 at the Mint. As you can see in the news release today, over 9,000,000 in revenue from the Mint. All those are profitable ounces, which is a fun and neat part of our business and something that is growing and something that we're looking to extend going forward. The our production increase, we put our guidance out so you can see in our guidance that we're guiding around $29,000,000 that's the midpoint for 2025, silver equivalent.

Speaker 1

And about 53% of that percentage silver, about 30 some odd percentage gold and the rest is in the form of lead and zinc. And the costs are looking to improve as well. We've got a very, very large exploration program planned for 2025. We got close to our target in 2024. I think we had a plan of doing about 220,000 meters in 2024.

Speaker 1

We got about 180,000 completed, which is nice. We'll be updating our AIF in March, which will show the changes in resources, which I look forward to seeing. But in 2025, we're actually planning to drill about 270,000 meters of drilling. It's a pretty darn big program. And then of course, a big focus for the next several months is integrating Gatos.

Speaker 1

We went from 4,100 employees to 5,300 employees. There are a lot of similarities in what we do, but there's also some differences. And these synergies or this whole merger does take time. Different technologies have to merge together and it does take time. There's cost effectiveness that will occur as well in a variety of different departments.

Speaker 1

And so we're looking to take advantage of some of the synergies to bring our costs down throughout the business, and we're looking forward to working on that over the next couple of quarters. We have plans in place to do exactly that thing. So look forward to good news going forward on the Gaffas acquisition. And that's really it for me. So why don't we go to questions if there are any?

Operator

Thank you, Keith. We will now proceed to the question and answer session. And your first question today will come from Heiko Ihle with H. C. Wainwright.

Operator

Please go ahead.

Speaker 5

Hey there. Thanks for taking my questions and I see the stock a little bit green today, so good to see. Looking back at the cost guidance that was published last week, you've got property, plant and equipment, sustaining capital at $51,000,000 The peso is obviously at $20,400,000 as of this morning when I wrote this up. That got me thinking, what kind of long term exchange rate, even past 2025 an inflation factor is built into all of this? And more generally, what are you seeing with pricing for equipment down in Mexico?

Speaker 5

And maybe building on all of that, what are you seeing in regards to inflation in general?

Speaker 1

Well, thanks, Heiko, and nice hearing from you and thanks for having the question for us. I'm going to pass that question on to Steve.

Speaker 6

Okay. Thanks, Keith. So right now, our guidance for next year, we're using a 19.5 to one ratio on the peso. So we're in good shape there. As far as inflation factors, what we're seeing is about a 4% to 4.5% general inflation rate and we've worked pretty hard on our programs to offset that inflation rate and the impact of the peso from last year.

Speaker 6

So, we don't anticipate seeing any unusual inflation that might come from say government policy applications north of the border and those types of things, but that's the basis for our guidance.

Speaker 5

Fair enough. And then completely different question. Can you provide some color on your longer term margin expectations for the first month? I mean, I assume the scale is reasonably well because at some point all the equipment is there and you're putting in silver at x and selling it at whatever 1.5x x.

Speaker 4

But I

Speaker 1

mean can you just provide some color on what you think you'll see maybe later this year and next even if you have thought that far ahead? Well, regarding the Mint, capital is still being spent up until really September, October '20 '20 '4. So we were still purchasing machines and I wouldn't say it was really up and running until really September, October. We had our inaugural celebration where everyone showed up and officially cut the ribbon and so on in September. So it has been operating since March and we've just we've been hiring people, putting the right people in place and it's going it's a young business.

Speaker 1

The business is actually can only reach its one year anniversary next month. So it's hard to expect to see major profits out of such a new business. But it is doing quite well. Where our ounces are generally being sold for about $3 over spot. So we do have a cost of those ounces.

Speaker 1

We have to get them up. There's our ounces coming from San Dimas that go through Asahi for refining, which has small costs there. And then those 1,000 ounce commercial bars get armored card up to Las Vegas into the Mint, where they get converted into a variety of different products and sold into the marketplace between $3 to $5 cost above spot depending on the different some products are produced with limited quantities like the Trump borrowers only. I think we only produced 2,400 of them. The seventeen seventy six borrower, we only produced seventeen seventy six of them.

Speaker 1

So those types of special runs, we charge $5 over spot and they sell quite well. So the Lunar Series, the Snake just came out. The Dragon came out a couple of months ago, a little bit late in the year. We worked on that for quite some time, unfortunately, but it finally came out. And there's no limited run on that one.

Speaker 1

We'll just keep making them as they sell. But it's selling quite well. The Buffalo has come along quite nicely as well, and there's a couple other products. So there are three additional products that will be released in 2025. We got about, let me think, about 5% of our total overall production through the Mint in 2024 showing with those types of margins.

Speaker 1

Our goal in 2025 is to get 10% of our total production through the Mint and we hope to continually grow that year after year.

Speaker 4

Fair enough. Yes, I was

Speaker 5

on the website earlier today and they do a great job displaying the Freedom Bar and the twentieth anniversary rooms being almost sold out, so that's pretty cool. Anyways, I'll get back in queue. Thanks for taking my questions.

Speaker 4

Okay. Thanks, Jacob.

Operator

And your next question today comes from Charles Ottaman with Scotiabank. Please go ahead.

Speaker 4

Thanks for taking my question. Hi, Manny and Singh. I'm just asking here on behalf of OViz. I think my first question there would be, how should we wait production on CapEx say for the closing of the Gatos acquisition? I know that's supposed to impact production at CLG.

Speaker 4

But beyond that, should we expect like a flattish production for this year?

Speaker 1

I had a hard time understanding the question. Manny, do you want to jump on that one?

Speaker 3

Yes, we're looking here. Chris, maybe just sorry, Charles, repeat the question, if you don't mind. We didn't hear it clearly.

Speaker 4

Okay, very sure. I'm asking, how do you expect production and CapEx to shake out in the first half and the second half of the year? Would it be flat or are you expecting IRM second half or first half?

Speaker 3

Yes. So it will be relatively consistent. So H1 versus H2. Gas sales is coming in earlier enough in the year, Jan twenty sixteen. So we don't have a lot of delays integrating it.

Speaker 3

So it's going to be relatively consistent. Just generally in Q4, our exploration programs does slow down. So you'll probably see a bit of a drop off in Q4 from exploration program. But for the most part, it's relatively consistent Q over Q.

Speaker 4

Okay. Thank you. I'm just sticking with exploration here. Could you explain could you provide some details around what type of exploration work is being done at Jared Canyon?

Speaker 3

Yes. So, we have 18,000 meter program at Jared. It's really going to go back and target some of the targets that we were hoping to get in 2024, but we weren't able to just due to delays in permits and the underperformance of the contractor. So, we're getting ahead of that, getting set up just in time to really kick it off right on time. Going to be it's really greenfield exploration targeting areas that hasn't been explored before.

Speaker 3

We have received the permits at the end of twenty twenty three that really haven't in areas that hasn't been explored. So that's going to be the focus in 2025 is go back and test those targets.

Speaker 4

Okay. And just on free cash flow, I mean, it's good to see the company generated about record free cash flow in Q4. And I think just based on our estimates and what the current spot price is saying, we should expect this to continue. So how should we think about your capital allocation priorities on a moving forward basis here?

Speaker 3

I'll defer to Keith on the capital allocation. I know there's a lot of discussions internally, but we just started our focus is obviously strengthen the balance sheet, but I'll turn it to Keith on that one.

Speaker 1

Yes. We put our budget out already on our expected capital expenditures for 2025 and I don't expect that's going to change. I think we are exploration program is already pretty aggressive. Our development program is also pretty aggressive. I'd really like to see treasury growth.

Speaker 1

Any extra capital that we're going to be gaining throughout the year, I want to see gold go into the treasury. And if we end the year with $500,000,000 in cash in the treasury, I think that's a pretty good place to be. I can see that happening.

Speaker 4

Okay. Thank you. That's all for me. Okay. Thank you.

Operator

Your next question today will come from Don DeMarco with National Bank. Please go ahead.

Speaker 7

Thank you, operator. And Keith, congratulations. A strong quarter, positive free cash flow. And that gas acquisition, I mean, the price of silver is higher, notably higher since the deal. So the outlook for silver remains bullish.

Speaker 7

When you look at the remaining single asset silver names out there, what are your strategies at this point with regard to M and A?

Speaker 1

Well, you guys are pretty close to the market and thanks for your assistance throughout the process as well. And we know all the players. We just had our board meeting or our quarterly board meeting just over the last couple of days. We've got a list of companies that we follow and our due diligence team is made up of a handful of people that just follow the space and we gobble up all the news that different companies put out and we absorb it all and put it all in Excel worksheets and we analyze everything and we categorize everything and rate everything and but we just bought Gatos, right? It's our largest transaction ever in the history of the company.

Speaker 1

They're basically $1,000,000,000 transaction. It's going to take a couple of quarters to get it fully integrated into the business. There's a lot of work to do there. So I'd rather our team, because some of the integration team is just some of the same team that's doing the or some of the M and A team, pardon me, is some of the same team that's doing the integration. So I'd rather our team focus on integration right now than worrying about other M and A.

Speaker 1

But there are names out there and we've always got our eyes open, but it takes to the tango. We're not in any rush to do it on the deal tomorrow.

Operator

Your next question today will come from Chris Ewing, Private Investor. Please go ahead.

Speaker 8

Congratulations on your good work here in your purchase of Gatos. I was just wondering what silver price do you think that we will need till we get positive per share earnings? And a follow-up question, would you ever consider in the future maybe when we get in a good place with these different assets integrated in the First Majestic maybe looking at dividends for shareholders in the future? Thank you.

Speaker 1

Well, the company already pays dividend. You should know that we do that. It was announced in today's news release that the Board approved the dividend payment. That dividend has been paid, I think, for over two years. I actually forget when we actually started it.

Speaker 1

When it comes to earnings, there's so much noise about earnings. Like we put out EBITDA, we put out our cash flow, we put out our mine operating earnings. All those numbers are positive. When it comes to bottom line earnings, like when you actually see on the bottom line a negative number, Unfortunately, there's just so much stuff that goes into that. And the biggest issue for us is the currency fluctuations.

Speaker 1

We have a under IFRS, we have to carry this very, very large tax liability and it's in Mexican pesos. And every single quarter, the Mexican peso moves around and it can change the bottom line earnings number by significant amounts. And it is a little bit crazy. It's hard for investors to understand that and they look at it as a loss. But it's a movement in the value of the assets that are on our balance sheet.

Speaker 1

So we have something in the order of USD 150,000,000 worth of pesos sitting on our books and those pesos are used to run the business. And because we report in U. S. Dollars, those pesos move around and then it creates a loss or a gain. And it can be quite different from one quarter to another.

Speaker 1

And it does create a ton of confusion. The audit committee has this discussion with our auditors who are in Deloitte on a regular basis on what we can do about this. And there's really nothing we can do. It a fact of running a foreign business in Mexico, which is a volatile currency and reporting in U. S.

Speaker 1

Dollars. And it's just a lot of our money half of our money is U. S. Dollars, half of our money is in pesos. Well, we've got Canadian dollars, of course, we've got euro and euros, of course, as well.

Speaker 1

But nevertheless, it's the pace of it really drives this profit and loss number. And I'm not sure, Manny, if you want to jump in and comment any further.

Speaker 3

No, that's pretty much it. It's really the tax pool, the tax losses pool that creates basically what's called a deferred income tax on our balance sheet and that gets revalued every quarter. So when the pace of weakens, it's great for us because it reduces our costs. So you'll start seeing our cash costs all in sustaining and all that coming down. But the flip side is the balance sheet gets revalued and it triggers a non cash foreign exchange loss and that ends up hitting the P and L and unfortunately in this case put us in a negative.

Speaker 3

But to your earlier points, what silver price is needed for positive earnings, I do think we're this trend continues with gas that's coming in. We'll have no problem really showing continuous improvement quarter over quarter and yes, be able to look out for Q1 and Q2.

Speaker 8

Thank you very much. Appreciate your time.

Operator

I will now pass the floor over to Mr. Daryl Ray, Investor Relations at First Majestic Silver to take us through the questions that have been submitted today through the webcast.

Speaker 9

Thanks, Nick. So we have a couple, Keith, and to wrap up and we'll get more questions from the line if there are any, but we might wrap with these. So, Keith, what are your insights on how the current political landscape in Mexico might influence First Majestic Silver's operations and market position?

Speaker 1

Yes. I think going back a couple of years, I think we were pretty negative on what was going on in Mexico. The previous government was just really not helpful. A lot of headline news, a lot of rhetoric that was hitting the newspapers and very much just anti foreign investment. Not so much mining per se.

Speaker 1

Mind you, he was talking about increasing taxes for miners and they did slow down the permitting process and Follum was frustrated many mining companies. And but it was just basically a very kind of totalitarian kind of anti business type environment in Mexico for the last five years, which is quite unusual because when we put the company together twenty one years ago, Mexico is a pretty friendly place to be as a Canadian company. And we're able to build the business quite quickly just because of the regulatory environment in Mexico over that fifteen year period and until this newer government came in. So now twenty one years in, we've got a new government. Shellbaum Claudia Shellbaum, she seems to be pretty open, much more pragmatic, much more business orientated, saying a lot of the right things.

Speaker 1

It's only been a couple of months, so it's hard to really point out any major events that are positive events that could be affecting the mining sector. But I can tell the people who are listening today that there are permits that have been granted. Several mining companies have received permits over the last month for a variety of different projects, and we're in line for a couple of permits as well, which we're being told we're going to be getting as well. So the environment looks like it's changed a lot. So we're crossing our fingers that what we're hearing or what we're thinking is actually real.

Speaker 1

And this current Mexican government is open for business and open for foreign investment. And we did make a decision to buy Gatos for a reason. We've got four producing mines in Mexico and then we've got 5,300 employees in the country. We've got a big stake in the country and obviously if we weren't as positive we are about what the future is for Mexico, I don't think we've done a Gatos transaction. Anything else though?

Speaker 9

There is one more question here. We're getting a few, but I'll just put them all together. But one is, your general thoughts with gold hitting all time highs, we'll still catch up. And I know we had a lot of time. We could talk about this forever, Keith.

Speaker 9

But a little bit of outlook on the silver price and what might happen in the medium term?

Speaker 1

Yes. Well, I get criticized constantly for my triple digit silver call. So, she's even recently I just saw someone else throw some mud my way. But yes, it's look, I'm a big supply demand fundamentalist and I think that supply demand for silver is at a point where we're in multiple year deficits and there's no reason why silver prices should not go higher. It's just a matter of time.

Speaker 1

And there is obviously a lot of there is a huge paper derivative market that kind of drives the price, which drives me crazy and drives a lot of other silver bulls crazy as well. These are the biggest banks in the world who have huge paper contracts in place that seem to be in the way of allowing silver to move to the price that it should be at. And not that I don't like $33 silver, it's not a bad place to be. If you look at our lifetime, silver has only been over $30 3 times in my life. And it's been over $30 for a good part of 2024 and it's holding ground quite nicely and gold continues seems to continue to want to drive higher.

Speaker 1

So it's just silver will break out and when it does, it's going to rattle these banks, I'm sure, who have received paper contracts, but that's just the way the market works. And once we get through this 35, 30 8 range, which I think are the two biggest resistant levels, it will slice through 40 and through 50 pretty quickly. And I think it's going to be on its way to triple digits. And is it going to happen in 2025? Well, I don't have a crystal ball, but it's something we're going to see and I don't think it's that far away.

Speaker 9

Okay. That was the final question from the webcast. Back to you, Nick.

Operator

Thank you. Showing no further audio questions, this will conclude our question and answer session. I would like to turn the conference back over to Keith for any closing remarks.

Speaker 1

Well, thank you everyone for joining us today. And obviously, this has been recorded and will be available on the website if anyone wants to have a listen to it later in their free time. But for those who are online, thanks a lot for joining us today. If there are any further questions or comments, please contact any of our staff. You probably all know Manny or Daryl or Joel, just any three of them are always available to chat with.

Speaker 1

So and we'll see you at the PDAC for those of you calling from Toronto. Have a great day.

Operator

This will conclude today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.

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